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PART ONE

Reimagine Your Business

REIMAGINEYOUR BUSINESS

DIGITALLEADERSHIP

Scope

Business model

Platform

BU

ILD F

OR THE FUTURE

STRENGTHEN THE C

OR

E

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Chapter 1

Business Scope

In 1960, Theodore Levitt, a Harvard Business School professor, pub-

lished a provocative paper in Harvard Business Review in which he

argued that companies were too focused on products and not enough

on customer needs. To help managers address this problem, he asked,

“What business are you really in?”1 More than five decades later this

fundamental question has become even more important, as companies

are moving from products to platforms and as industry boundaries are

getting blurred. Yet even though the majority of firms are trying to

become customer-centric, it is not uncommon to hear senior executives,

be it from General Motors or Walmart, define their businesses, their

industries, and their competition by the products they produce and sell.

Let’s look to Amazon to see the advantage of heeding Levitt’s advice.

What Business Is Amazon In?

When Amazon first launched its website, in July 1995, founder Jeff

Bezos’s goal was to use the internet to sell books at low prices. He cre-

ated a virtual store with lower fixed costs and a larger inventory than

those of most brick-and-mortar bookstores. The concept quickly became

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popular, and Bezos realized that consumers shopping for other types of

goods might also appreciate this concept. So he began adding dozens

of categories to Amazon’s online assortment, including music, DVDs,

electronics, toys, software, home goods, and many more. Amazon’s low

prices and large selection, and the convenience online retailing pro-

vided consumers, posed a significant threat to traditional retailers like

Best Buy, Toys “R” Us, and Walmart.

Five years later Amazon opened its site to third-party sellers, who

could post their products on Amazon’s site for a modest service fee.

This move was a win-win: third-party sellers increased Amazon’s assort-

ment without Amazon having to stock extra inventory, and sellers got

access to the ever-increasing pool of consumers who enjoyed shopping

on Amazon’s site. Adding third-party sellers also transformed Amazon

from an online retailer to an online platform, which required Amazon to

develop new capabilities of acquiring, training, and managing sellers on

its sites without losing control or damaging customer experience. And

its competitive set expanded to include eBay, Craigslist, and others.

Other online retailers, such as Flipkart in India, are undergoing a

similar transition and realizing that this seemingly simple move from

an inventory-based model to a marketplace model requires a significant

shift in the capabilities and operations of the company.2

The introduction of iTunes, in 2001, dramatically changed con-

sumers’ behavior as they started downloading digital music instead of

buying CDs in a store. Recognizing this trend, Amazon launched its

video-on-demand service, initially called Unbox and later renamed as

Amazon Instant Video, almost a year before Netflix introduced video

streaming. Once again Amazon followed its customers and shifted from

selling CDs and DVDs to offering streaming services that required it to

develop new capabilities and pitted it against a new set of competitors,

such as Apple and Netflix.

In 2011, in partnership with Warner Bros., Amazon launched Ama-

zon Studios to produce original motion-picture content. Suddenly it

was competing against Hollywood studios. Why does it make sense for

Amazon, which started as an online retailer, to move in this direction?

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Because video content helps Amazon convert viewers into shoppers. In

a 2016 technology conference near Los Angeles, Jeff Bezos said, “When

we win a Golden Globe, it helps us sell more shoes.”3 According to

Bezos, the original content of Amazon Studios also encourages Prime

members to renew their subscription “at higher rates, and they convert

from free trials at higher rates” than Prime members who do not stream

videos.4 Launched in 2005, Prime offers free two-day shipping for a

subscription fee, which started at $79 a year and was later increased

to $99 a year. By 2017, Amazon had almost 75 million Prime mem-

bers worldwide.5 Not only does the subscription fee generate almost

$7.5 billion in annual revenue for Amazon, but Prime members also

spend almost twice the amount of money than other Amazon customers

do.6 In addition to creating loyalty among Prime members, original

content is also a means of attracting new customers. In 2015, Amazon’s

CFO Tom Szkutak credited Amazon’s $1.3 billion investment in original

content as a key driver for attracting new customers to other parts of

Amazon’s business, including Prime.7 In 2017, Amazon spent almost

$4.5 billion on original video content.8

But Amazon’s business scope did not end with retailing and con-

tent. In 2007, Amazon released the Kindle, almost three years ahead

of the iPad. Now Amazon, which started as an online retailer, was in

the hardware business. The Kindle was designed to sell ebooks as con-

sumers shifted from physical products to digital goods. It is important

to recognize that Amazon’s strategy for the Kindle is quite different

from Apple’s strategy for the iPad. Apple makes most of its money from

hardware, whereas Amazon treats the Kindle as a “razor,” selling it at a

low (or even break-even) price in order to make money on the ebooks,

which would be akin to the “blades.” As consumers started spending

more and more time on their mobile devices, Amazon launched its own

Fire phone in July 2014. It failed to gain traction, but was pursuing

that market a mistake? Perhaps. However, the upside from a successful

launch would have been enormous.

More recently, Amazon launched additional devices: Dash buttons,

which let users order products from over a hundred brands when users’

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supplies get low, and Echo, a voice-activated virtual assistant, which can

be used to stream music, get information, and of course, order products

from Amazon in an even more convenient fashion.9 Echo was launched

in November 2014, and within two years Amazon had sold almost eleven

million Echo devices in the United States and developers had built over

twelve thousand apps or “skills” for this device. As voice increasingly

becomes the computing interface for consumers, Amazon is well posi-

tioned with Echo.

Amazon also started its own advertising network, which put the com-

pany squarely in competition with Google. Amazon’s large customer

base, and more specifically the company’s knowledge of consumers’

purchasing and browsing habits, provides Amazon with a rich source

of data for targeting its customers with relevant ads. While Google only

knows a consumer’s intention to buy a product, Amazon has informa-

tion on whether or not a consumer actually bought a product on its

site—highly valuable information for product manufacturers, which is

encouraging them to shift digital advertising dollars to Amazon. This

shift has allowed Amazon to generate almost $3.5 billion of ad reve-

nue in 2017.10 But an even bigger goal for Amazon is to replace Google

as a search engine for products, so that customers start their product

search on Amazon rather than on Google. This would not only reduce

Amazon’s ad spend on Google but would also give Amazon tremendous

market power. In October 2015, a survey of two thousand US consum-

ers revealed that 44 percent go directly to Amazon for a product search,

compared with 34 percent who use search engines such as Google or

Yahoo.11 Eric Schmidt, Google’s executive chairman, acknowledged this

shift. “People don’t think of Amazon as search,” said Schmidt, “but if

you are looking for something to buy, you are more often than not look-

ing for it on Amazon.”12

Perhaps the most controversial choice was Bezos’s decision to enter

the cloud-computing market with the launch of Amazon Web Services

(AWS). Suddenly a completely new set of companies—for instance,

IBM—became Amazon’s competitors. What is an online retailer doing

in cloud computing? AWS helps Amazon scale its technology for future

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growth. It allows Amazon to learn from other e-commerce players who

use its platform. And it enables Amazon to leverage and monetize its

excess web capacity. Effectively AWS is a way for Amazon to build its

technology capability to become one of the largest online players and

monetize that capability at the same time.

However, this was certainly a risky move and many experts questioned

Bezos’s decision. A 2008 Wired magazine article criticized this decision.

“For years, Wall Street and Silicon Valley alike have rolled their eyes at

the legendary Bezos attention disorder,” wrote Wired. “What’s the secret

pet project? Spaceships! Earth to Jeff: You’re a retailer. Why swap pricey

stuff in boxes for cheap clouds of bits?”13 Bezos had a pithy response

to AWS critics: “We’re very comfortable being misunderstood. We’ve

had lots of practice.”14 In the fourth quarter of 2017, AWS generated

over $5 billion in revenue, representing annual revenue of more than

$17 billion and 43 percent year-over-year growth.15

Amazon’s success in broadening the scope of its business while con-

tinuing to focus on consumer needs is undeniable: Since its inception,

Amazon has grown at a staggering pace, with almost a 60,000 percent

increase in its stock price.

Define Your Business Around Your Customers, Not Your Products or Competitors

Amazon’s varied products and services, and the company’s corre-

spondingly numerous and varied competitors, can be seen at a glance

in figure 1-1. As an online retailer, Amazon competes with Barnes &

Noble, Best Buy, and Walmart. As an online platform, Amazon com-

petes with eBay. In cloud computing, it battles for market share with

IBM, Google, and Microsoft. In streaming services, it has Netflix

and Hulu as formidable competitors. Amazon Studios puts the com-

pany up against Disney and NBC Universal Studios. Its entry into

mobile phones put it in the crosshairs of Apple, HTC, and Samsung.

Its ad network made it Google’s rival.

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eBay

Marketplace

App storePhone

Studio

VOD

AWS

Books andelectronics

Kindle

Adnetwork

Amazon

IBM

Microsoft

Hulu

Netflix

ABCNBC

HTC

Samsung AppleApple

Apple

HP

Barnes & NobleWalmartBest Buy

Google

Google

Figure 1-1

Amazon’s business and its competitors

Most companies define their business by either their products or

their competitors—for example, you may consider yourself in the bank-

ing business or the automobile industry. But it is hard to define Ama-

zon in this traditional fashion. Amazon expanded its scope around its

customers.

Redefining your business around customers is not limited to technol-

ogy companies. John Deere, the heavy-machinery and farming-supply

company, was founded in 1837 by a blacksmith who sold steel plows to

farmers.16 By 2014, the company had $36 billion in sales worldwide and

employed nearly 60,000 people.17 For decades, John Deere had been

very successful selling its heavy machinery to farmers and construc-

tion companies, but in the early 2000s the company began adding soft-

ware and sensors to its products. Its newest farming equipment includes

guided-steering features so accurate that the equipment can stay within

a preset track without wavering more than the width of a thumbprint.18

Later, John Deere formed two new divisions: a mobile-technology group

and an agricultural-services group.

By the mid-2000s, John Deere had collected data from over

300,000 acres to help farmers optimize their fertilizer use.19 Soon

the company transitioned from a farm-equipment manufacturer to a

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Farmequipment

Farmmanagement

Seedoptimization

Irrigation

Weatherdata

• Weather maps• Weather forecasts• Rain, humidity, temperature sensors

• Seed databases• Farm-performance databases• Seed-optimization applications

• Field sensors• Irrigation nodes• Irrigation application

• Tractors• Tillers• Planters

Figure 1-2

John Deere’s transformation

Source: Adapted from Michael E. Porter and James E. Heppelman, “How Smart, Connected Products Are Transforming Competition,” Harvard Business Review, November 2014.

farm-management company that provided predictive maintenance,

weather information, seed optimization, and irrigation through remote

sensors (see figure 1-2). The company is planning to open the platform’s

application programming interfaces (APIs) to outside developers, so

that the information can be used in new ways.20

Automobile companies, which used to see themselves as being strictly

in the business of manufacturing and selling vehicles, have to wake up to

the new competition from ride-sharing companies like Uber, which are

providing mobility without the need to own or even lease a car. Now, as

a defensive move, all automakers are positioning themselves within the

“mobility” business and offering their own ride-sharing services, even

though these services have the potential to reduce the demand for cars,

a concern shared by most auto manufacturers. However, these services,

such as Mercedes car2go and BMW DriveNow, also have the potential to

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generate interest among millennials, who may not have considered these

brands otherwise but who will do so on a low-cost, trial basis, possibly

leading to greater brand loyalty in the future.

Competition Is No Longer Defined by Traditional Industry Boundaries

It should be clear from the discussion so far that competition is no longer

defined by traditional product or industry boundaries. The rapid devel-

opment of technology is making data and software integral to almost

all businesses, which is blurring industry boundaries faster than ever

before. In a 2014 Harvard Business Review article, Michael E. Porter and

James E. Heppelmann suggested that smart, connected devices—or the

internet of things—shift the basis of competition from the functionality

of a single product to the performance of a broad system, in which the

firm is often one of many players.21

Typically new players, either startups or companies from different

industries, enter a market and catch incumbents by surprise. Amazon

surprised Google by becoming the dominant competitor in the search

market. Apple is hiring automobile engineers at a rate that is scaring the

auto industry. Netflix and, more recently, streaming services by HBO

and CBS are causing concern for Comcast and other cable players.

Often incumbents leave an opening for new players by ignoring a

shift in customer needs in response to changes in technology. Netflix

changed customers’ expectations about on-demand streaming, and

although cable providers eventually pursued the so-called TV Every-

where concept to allow their subscribers to stream content anywhere,

it took them several years to develop this service, and it is still a work

in progress. During a conference in late 2015, Reed Hastings, Netflix’s

CEO, said, “We’ve always been most scared of TV Everywhere as the

fundamental threat. That is, you get all this incredible content that the

ecosystem presents, now on demand, for the same [price] a month. And

yet the inability of that ecosystem to execute on that, for a variety of

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reasons, has been troubling.”22 Had Comcast understood the shift in

customer needs and transformed its business around those needs, it

might have prevented the threat of cord-cutting (which is cable custom-

ers canceling their subscriptions in favor of such streaming services as

Netflix, Hulu, and HBO Now). Similarly, Uber might not have been so

successful had taxi companies kept in touch with consumer needs and

provided consumers a convenient way to order and pay for taxi rides.

Competitive Advantage No Longer Comes from Low Cost or Product Differentiation

In 1979, Michael Porter, one of my colleagues at Harvard Business

School, published a landmark paper in which he argued that a company

could follow one of two potential strategies for competitive advantage:

either by being cheaper (that is, as a low-cost producer) or by being

different (with differentiated products that command higher prices).23

This view suggested that the core competencies required to become a

low-cost producer include scale and operational efficiency, whereas a

differentiation strategy requires the ability to create innovative products

and services. As the scope of a business expands and both its competi-

tion and its industry boundaries are defined more broadly than before,

a company needs to rethink its core competencies and its competitive

advantage.

What is Amazon’s core competency that allows it to enter into such

disparate business areas as online retailing, cloud computing, hardware,

digital advertising, media streaming, and content creation? Although

Amazon started as a low-cost player without the fixed cost of stores, it is

not product-centric knowledge that gives it an advantage of differentia-

tion or low cost. Instead, Amazon has mastered three skills:

• Deep knowledge of customers obtained from mining customer data.

This is embedded in the recommendation system for books and

movies as well as in the introduction of new products and services.

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• Back-end logistics for warehousing and shipping that could rival

the logistics systems of FedEx and UPS. With its investment in

drones and now its own trucking business, Amazon is further

strengthening this part of its competency.

• Knowledge of and ability to manage technology infrastructure.

This has allowed it to become not only one of the largest online

retailers but also a dominant player in cloud computing.

These skills provide a unique advantage to Amazon, an advantage that

makes it difficult for Amazon’s rivals to compete. For example, a deep

understanding of customers and their demand patterns allows Amazon

to have a cash conversion cycle of minus fourteen days, in contrast to

the cash conversion cycle of ten days for Walmart and twenty-seven

days for Target.24 (The cash conversion cycle is calculated by adding

the number of inventory days and accounts-receivable days and sub-

tracting accounts-payable days. Amazon reduces its inventory days by

accurately forecasting consumer demand. Its accounts-receivable days

are low since it gets payment from consumers almost immediately, and

it pays its suppliers in thirty to sixty days. With a cash conversion cycle

of minus fourteen days, Amazon is effectively letting its suppliers fund

its growth.) An accurate estimation of demand also allows Amazon to

prestock the right products in a particular warehouse and promise

delivery of these items within two hours in that geography through its

recently launched Prime Now service.

Complementary Products and Network Effects Provide Strong Competitive Advantage

In today’s connected world, sustainable competitive advantage comes

from offering a system of connected and complementary products, and

from creating a platform with strong network effects that increase con-

sumers’ switching costs. Mobile-phone companies such as Nokia were

product-based until smartphone players such as Apple moved to a

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platform-based model whereby the value of the iPhone increased with

the development of new apps. The iPhone’s product advantage over

Samsung’s Galaxy phones has lessened dramatically over time, yet the

iPhone has managed to maintain its leadership position largely due to

complementary services, such as iTunes and FaceTime, that make it

harder for consumers to switch.

Traditional retailers like Walmart and Best Buy have started their

own e-commerce operations and often find it frustrating that their

operations have not gotten the needed traction even though Walmart

and Best Buy prices are not only comparable but, in many cases,

lower than those of Amazon. Although Amazon started as a low-cost

player, over time it has built a series of complementary services

(e.g., free music and video to Prime members) that have redefined its

competitive advantage.

Paytm, an Indian startup backed by Alibaba, illustrates the idea of

complementary products very well. Paytm began its operations as an

online mobile-recharge company that offered consumers the conve-

nience of adding money to their prepaid mobile phones. It charged

mobile operators a small fee for this service. Soon it added new comple-

mentary services: Consumers could use money from their Paytm wallet

to buy bus and train tickets. They could use it to pay for Uber and other

online-to-offline (O2O) services. They could use it for peer-to-peer pay-

ments. They could use it to pay offline merchants, including millions of

mom-and-pop shops, who put QR codes in their shops for consumers

to scan with their mobile phones, instead of installing expensive POS

machines to accept credit cards. (Unlike credit-card companies, Paytm

did not charge any fee to small merchants for accepting Paytm money.

Paytm did charge large merchants, and consumers were charged a fee if

they took money out of the Paytm system. This encouraged consumers

to keep the money within the Paytm network.) And, finally, consumers

could use money from their Paytm wallet to buy products online. In

2015, Reserve Bank of India, the country’s central bank, gave banking

licenses to Paytm and several mobile operators to provide mobile bank-

ing services to millions of consumers who did not have access to banking

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services in India. By adding these complementary services, Paytm made

its wallet increasingly valuable to consumers. By mid-2017, Paytm had

more than 200 million wallets. In the process of adding these new ser-

vices, Paytm expanded the scope of its business, developed new capabili-

ties (e.g., running an online marketplace, becoming a bank), and started

competing with a diverse set of players.

In many cases the value of a product (e.g., WhatsApp) increases

as more consumers use it, without any change in the product’s fea-

tures or functionality. This is the direct network effect. In addition, as

a product becomes a platform that connects, say, buyers and sellers

(e.g., eBay), it gains from indirect network effect. That is, as buyers join

the platform in increasing numbers, more sellers have an incentive to

be part of it. This virtuous circle leads to a winner-take-all environ-

ment that makes it harder for any other player—even those with better

products or lower costs—to compete effectively. Companies enjoy-

ing strong indirect network effects include Uber, Airbnb, Match.com,

Flipkart, and others.

Figure 1-3 shows how the traditional way of providing value to cus-

tomers has changed dramatically in the digital age. In the last sev-

eral decades companies have been organized by products, and each

business unit’s goal has been to provide product value for every single

target customer, effectively focusing on a single product and a single

customer (the bottom left quadrant of figure 1-3). The traditional stra-

tegic framework espoused by Michael Porter worked well here, and

companies focused on making their products cheaper or better. Auto-

mobiles, consumer products, banking products, all have used this tra-

ditional approach.

However, companies like Amazon exploit the synergy between comple-

mentary products by using the razor-blade strategy, in which the razor

(e.g., Kindle) can be sold almost at a loss in order to make money on the

blades (e.g., ebooks). Note that for this strategy to work, an organization’s

structure and its incentive systems have to move away from one built around

traditional product units. The performance of a Kindle manager cannot

be measured and evaluated based on the profitability of his business unit.

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Multiplecustomers

WhatsAppFacebookAmazon MarketplaceUber

WeChatAmazonPaytmPeloton ridersNike+ Run Club Multiple

productsSingleproducts

Singlecustomer

AutomobilesConsumer productsFinancial servicesPeloton bikesNike shoes

Echo and e-commerceKindle and ebooksiPod and iTunesPeloton videosNike+ FuelBand

Network effects:Create virtuous circle

Traditional strategy:Make it cheaper or better

Complements:Razor-blade strategy

Network effectsand complements

Figure 1-3

New ways to provide value to customers and create competitive advantage

His goal is not to make money on the Kindle but to help sell more ebooks.

It can become very hard for a rival to compete with a firm whose strategy is

based on complementary products. In 2016, Amazon made over $1 billion

in small-business loans to more than 20,000 merchants who sell products

on its platform.25 Amazon could easily decide to offer these loans at a much

lower rate than traditional banks, because Amazon can use these loans as a

razor to make money on the merchant transactions on its platform. If the

core product of banks were to become a complement for Amazon, banks

would find it very hard to compete.

In the connected world, the value of a product such as WhatsApp or

Uber increases as more people use it, without any changes in the prod-

uct features. This creates a winner-take-all scenario that makes it very

hard for competitors who are competing solely on the basis of low cost

or product differentiation. Amazon was an online retailer without any

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network effects until it added the marketplace that allowed third-party

sellers to join. In chapter 3 we will discuss how traditional companies

like GE are rethinking their strategy by moving from products to plat-

forms to take advantage of these network effects.

The most ambitious strategy is to devise an approach that benefits

from both complements and network effects. When Tencent launched

WeChat in China in 2011, the product was designed as a messaging appli-

cation, similar to WhatsApp, and it benefitted from network effects. As

it gained in popularity and became the favorite messaging medium for

almost all Chinese consumers, Tencent started building complementary

services within WeChat. Now, WeChat consumers can use the applica-

tion to pay their utility bills, order a pizza, book a doctor’s appointment,

and scan a QR code at a supermarket. WeChat’s payment service has

become a serious threat to Alibaba’s Alipay.

This strategy is not limited to technology companies. Nike launched

FuelBand to help runners track their activities and later created the

Nike+ Run Club that encouraged people to run and train with the

global Nike+ community. Peloton, when introducing a new exercise

bike, didn’t simply claim that its bike was better than competing prod-

ucts. It launched a series of exercise videos that users subscribe to on a

monthly basis. Peloton also introduced live classes that users can stream

from the comfort of their own homes, and as part of the streaming,

the user’s performance metrics—exertion level, heart rate, rank in the

class—are displayed at the bottom of the screen. It is not uncommon for

a few hundred people to be participating in a live class. This not only

creates a sense of community but also, for many, creates a competitive

environment that gives them an additional incentive to put in that extra

effort in their exercise routine. US Foods, a company that distributes

food to restaurants, provides complementary services to its clients to

help them manage inventory, reduce waste, and optimize labor. It is also

building a platform to connect several smaller suppliers to its large cli-

ent base, similar to what Amazon did when it added third-party sellers

on its platform.

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Data and Customers Become Critical Assets of a Company

The two most valuable assets of a company today are its data and its

customer base, yet they don’t show up in the balance sheet. The finan-

cial reporting system, which reflects how companies have traditionally

managed their business, focuses on physical assets instead.

Customers create a powerful network effect, and they also provide an

opportunity for introducing complementary services. Amazon has used

this strategy very effectively. It is not hard to imagine how Amazon may

leverage its large base of Prime customers to introduce new services.

In May 2017 Amazon was rumored to be exploring a move into the

$465 billion US pharmaceutical market. If the company can deliver

books and other products to its trusted Prime customers, why couldn’t it

also deliver prescription drugs to those very same customers? T-Mobile,

a wireless service provider in the United States, has over seventy mil-

lion customers. The company started offering its customers free pizza

on Tuesdays, which soon expanded to include offerings of free movie

tickets and magazine subscriptions and discounts on gas. The exchange

is mutually advantageous. Providers of these free products get access

to T-Mobile’s customer base in order to generate trial offerings and

acquire new customers, and T-Mobile gets to offer additional value to

its customers at no cost.

“Data is the new oil” is the often-quoted mantra these days, and for

good reason. Unlike physical assets, data does not get “used up.” It can

be replicated and used in multiple applications without diminishing its

value. In fact, the value of data increases as more data is collected—sort

of a “data network effect.” Amazon’s Echo gets better as people use it

more and as Amazon refines its functions. Tesla improves its self-driving

algorithms and updates its software regularly as it gets more data from

its cars. Artificial intelligence and the internet of things are creating

products with the ability to learn and improve the more the products

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are used, because the more they’re used, the more data they collect, and

the more data they collect, the more refined their functioning becomes.

These data network effects also create a powerful competitive advantage.

Even if General Motors and Ford can create cars with better physical

product features, Tesla’s wealth of data from its autonomous vehicles,

which fuels the development of its algorithms, will continue to give the

company a strong competitive advantage for a long time.

A Broader Business Scope Requires Building New Capabilities

During the launch of the Kindle 2, Jeff Bezos explained how Amazon

shifted from selling electronics to manufacturing them: “There are two

ways to extend a business … Take inventory of what you’re good at and

extend out from your skills. Or determine what your customers need

and work backward, even if it requires learning new skills. Kindle is an

example of working backward.”26 Traditionally companies expand into

adjacent businesses where they can leverage their existing core capabil-

ities. However, a customer-centric view requires a firm to follow shifts

in customer needs and to develop new capabilities to meet those needs.

By 2006, half of John Deere’s employees were engineers and the

company planned to hire even more engineering talent to support new

capabilities, such as artificial intelligence and satellite navigation. “We’re

known as a company that provides great tractors or great lawn mowers.

What many don’t know is that we have a great focus on innovations in

information technology,” said Larry Brewer, John Deere’s global infra-

structure services manager.27

As John Deere moved into value-added services such as predictive

maintenance, analytics, and crop optimization, it had to build signif-

icant internal capabilities around data science and analytics. In 2015,

Charles Schleusner, who worked in John Deere’s Intelligent Solutions

Group, shared that fewer than 40 percent of farmers in North America

documented their harvests and even fewer captured their planting of

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crops or field applications of fertilizers and pesticides.28 John Deere saw

an increasingly important role for the company to help harness data for

farmers to use in making better decisions, and was willing to invest in

building new capabilities in pursuit of that goal.

How Far Should You Extend Your Business?

At this point, some of you may be wondering if broadening the scope of

the company would lead to a lack of focus. Isn’t the success of Apple due

to its laser-sharp focus on a handful of products that can fit on a table?

Can a company do everything and be good at all of them? Didn’t the

strategy books teach us to focus on our core competencies lest we spread

ourselves too thin?

The tension between focus and broad scope is reasonable and healthy.

It’s best to think about your consumers’ point of view and how your

core competencies can help serve those consumer needs. Apple is hiring

hundreds of automobile engineers, and there is a lot of speculation that

Apple may build its own car. Is Apple losing focus? If we think a little

broadly, an automobile is the ultimate mobile device, and the core skill

of Apple—creating superb user interface—is becoming increasingly

important in cars, where consumers want a seamless integration of their

mobile devices. If automobiles become software on wheels, Apple may

have a strong role to play in this industry. And the company’s strategy

of tightly integrating its hardware and software would suggest that it

better invest in the hardware: the automobile.

Industry leaders are beginning to recognize this new reality. Speaking

at the Consumer Electronics Show in Las Vegas in January 2016, Mark

Fields, then the CEO of Ford Motor Co., said, “[Y]ou are going to see

us change pretty dramatically, becoming an auto and mobility company.

You will see us focus more attention on the transportation-services sector,

even as we maintain our emphasis on our core automotive business.”29 In

May 2017, Jim Hackett, chairman of Ford Smart Mobility, replaced Mark

Fields as CEO, signaling a major shift in Ford’s strategy.

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